The mortgage interest rate on your mortgage determines the amount of interest you’ll pay each month. A higher interest rate means you’ll pay more in interest, and a lower interest rate means you’ll pay less. Monthly Payment: Your monthly payment, also known as your mortgage payment or PITI (Principal, Interest, Taxes, and Insurance), includes: a. Principal: The amount borrowed (the loan amount). b. Interest: The cost of borrowing (the interest rate applied to the loan amount). c. Taxes: Property taxes, which vary by location. d. Insurance: Homeowners insurance, which protects against damage or loss. 1. How Mortgage Interest Rates Affect Monthly Payments: a. Higher Mortgage Interest Rates: Increases the interest portion of your monthly payment, resulting in a higher overall payment. b. Lower Mortgage Interest Rates: Decreases the interest portion, leading to a lower overall payment. c. Example: Loan Amount: $200,000 Interest Rate: 4% vs 5% Monthly Payment: $955.66 (4%) vs $1,073.64 (5%) In this example, a 1% increase in interest rate results in a $118 higher monthly payment. Remember, even small changes in interest rates can significantly impact your monthly payment over the life of the loan. Always consider the interest rate when evaluating mortgage options. Graph powered by OBMMI